The Culture question

Many column inches have been written over recent weeks on the subject of culture in business.

Examples include the CBI, ITV, the Australian tax saga at PwC, recent plc executive departures and the very disturbing allegations at Odey Asset Management.

So it does seem to be a good moment for public companies and other business organisations to take stock and ask themselves a few questions:

• are we sufficiently clear in communicating what our culture is and the behaviours which are encouraged, tolerated and forbidden?
• do we have appropriate processes in place to monitor culture and respond to lapses, actual and alleged?
• are we fair?
• are we thoughtful enough about managing reputational risk?

We should start by attempting to define culture. One of the most illuminating definitions I have come across is this one from Jason Furlong in the context of law firms (but of application across businesses):

“The daily manifestation of the firm’s explicit performance expectations and its implicit behavioural norms - what is rewarded, what is tolerated, what is overlooked and what is punished… As a general rule the lower someone sits on the organisational chart, the more accurate is their perception of the firm’s culture…The partners wax rhapsodic about how wonderful it is to work there. But if you want to get closer to the truth, go ask the law clerks, the administrative assistants, the marketing personnel, the IT folks and the person who cleans up the mess in the kitchen every morning?”

The references to performance expectations and behavioural norms go to the heart of themes such as integrity, diligence and respect for others.

Recognising that embedding and monitoring good behaviours in large (often multi-jurisdictional) organisations is really challenging, here are a range of thoughts which seek to respond to the questions I pose above.

1. Purpose

It does seem to me that purpose is a key ingredient in the cultural glue of a business organisation, particularly one that is large and global. In building a sense of “one team”, a unifying purpose can make a real difference.

Take a look at GSK’s purpose statement:

“We are a global biopharma company with a purpose to unite science, technology and talent to get ahead of disease together. We aim to positively impact the health of 2.5 billion people by the end of 2030. Our bold ambitions for patients are reflected in new commitments to growth and a step-change in performance. We are a company where outstanding people can thrive.”

You have to be pretty cynical not to find that motivating and it speaks to many people’s desire to be part of “a winning team on a worthwhile mission”.

At the same time, to be effective a business’s purpose needs to be communicated approachably and well (with examples of behaviours sought and discouraged) throughout the organisation. It must be lived – not just a strapline.

A well-articulated purpose, moreover, underpins and gives shape to strategy. In GSK’s case “…We prioritise innovation in vaccines and specialty medicines, maximising the increasing opportunities to prevent and treat disease…”. Which of course drives the investment case for the business and the standing which the organisation has with investors and other external stakeholders.

So, for those organisations which have not done so, the process of consulting within the business and crystallising a “North Star” statement of “why we exist and what we are for” should be high on the agenda.

2. Codes and policies

Are the business’s codes and policies around integrity, countering corruption, respect, safety and safeguarding and external relations easily available, approachably written and regularly discussed within the organisation?

When were they last refreshed? Are there regular training modules and are there periodic “mystery shopper” exercises to check that they are being observed?

Are whistleblowing procedures publicised widely enough and do whistleblowing trends receive Board level attention?

3. Staff surveys and staff feedback

Three points here:

• staff engagement surveys are an important source of data for management teams and boards but need to be thoughtfully put together, not too long and done regularly, say six monthly. Critically the data needs to be seen at Board level and any red flags, and hotspots and outliers (to borrow a phrase from FRC Guidance), addressed promptly;
• 360-degree feedback exercises are valuable. Business leaders may not welcome critical feedback (even though, as Warren Buffett says, it is a gift) and so Boards should think about ways to control for that - for example by nominating a non-executive director (NED) to deliver the feedback to the senior executives; and
• pooling ideas is valuable. As NEDs will often be familiar with other organisations the CEO and Chief People Officer should gather and evaluate their ideas for effective staff feedback mechanisms.

4. Tone

Whilst the tone set by the CEO and the executive leadership goes to the heart of culture, the behaviours and style of middle management will be key. In larger organisations it is this permafrost layer that will be the day-to-day guardians of culture.

Is the executive leadership attentive enough to this reality with regular training and behavioural audits?

And the Board of course has a vital role to play. Often the function of the Board will be poorly understood within organisations - remote, slightly scary and externally focussed.

Boards are increasingly attentive to this, and encouraged to be so by governance codes, but it is surely worth taking stock of practical steps which can make a difference, such as:

• virtual town halls presented by the Chair, the nominated employee director (if there is one) or other directors;
• “breakfast with the Board” sessions;
• reverse mentoring, where NEDs are mentored by junior members of the team;
• “two days in the business” mandates whereby each NED has to spend two days per annum in the business (stacking shelves, answering calls, riding in vans) and reporting to the Board on her or his top takeaways;
• reviewing the extent to which “executive reward” is conditioned by behaviours; and
• an annual visit to the Board by a workforce representative. I recently observed a Board when this occurred and the ability for directors to probe around areas impinging on morale was strikingly valuable.

5. Processes when things go adrift

The pressure on a Board when behavioural lapses, and alleged lapses, occur at a senior level is enormous.

We have seen this played out graphically recently at the CBI, Tesco, ITV, PwC and (apparently most extremely) Odey. We live in a media world, for better or worse, where news is shared instantaneously and with no boundaries - and where facts may matter less than impressions.

Each circumstance will be different and so “one size fits all” processes are not realistic, but a few thoughts:

• it will be important for Board debate to be as orderly and structured as possible, starting from the propositions that:

1. someone must be in charge (normally the Chair);
2. best advice must be sought as to duties and communications; and
3. the Board should strive to be fair and seek to establish the facts - often through an independent investigation - before taking action. As Oliver Shah pointed out in the Sunday Times, due process matters:

“Due process is part of corporate governance. Both are boring phrases, but when the chips are down, they suddenly matter.”

• in terms of being prepared, Boards should consider undertaking some “pre-mortem” case study work to war game a very difficult cultural event. The visceral impact of such issues suggest that working through a potential response scenario is of real value; and
• calm judgement will be key – the Board will need to balance the interests of all stakeholders as appropriately as possible, having regard to its duties, whilst screening out the noise.

6. Reputation

All of the above, of course, feeds into the question of reputation.

As outlined in a thoughtful article from the Harvard Business Review (https://hbr.org/2007/02/reputation-and-its-risks) some years ago:

“Most companies…do an inadequate job of managing their reputations in general and the risks to their reputations in particular. They tend to focus their energies on handling the threats to their reputations that have already surfaced. This is not risk management; it is crisis management—a reactive approach whose purpose is to limit the damage.”

The tips in the article have stood the test of time, summarised thus:

“Effectively managing reputational risk involves five steps: assessing your company’s reputation among stakeholders, evaluating your company’s real character, closing reputation-reality gaps, monitoring changing beliefs and expectations, and putting a senior executive below the CEO in charge.”

Recent events are a prompt for businesses to be more purposeful in reputation risk management.

As we know, time spent in reconnaissance is seldom wasted.

Christopher Saul

Christopher Saul provides independent trusted advice to senior executives and key stakeholders within publicly quoted and privately owned businesses and professional service firms. His areas of focus are governance, succession and the moderation of differences.

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