“Culture, more than rule books, determines how an organization behaves.” – Warren Buffett
With headlines increasingly calling out egregious behaviors by corporate leaders, company culture has moved from its once relegated home in human resources to the top of many corporate board’s agendas. As bad behavior by individuals puts companies at risk (think: Les Moonves at CBS), board directors are forced to deal with how employees’ (mis)conduct impacts shareholders. Culture has garnered governance attention as an additional oversight responsibility to manage corporate risk.
The current trend of a “culture of conduct” as a board room topic follows on the heels of the 2008 financial crisis when global financial services institutions addressed the issue of poor behavior by creating ethics and culture committees. Outside of financial services, standing ethics and compliance committees emerged primarily in industry sectors where a wake of fraudulent behaviors shook the sector (think: Medicare fraud), or bad behaviors shook a specific company (think: Uber).
While great to see boards taking on the mantle of how their organizations act, it is a missed opportunity to treat culture in terms of ethics and compliance rather than for the creation of long term value. Governing culture should extend beyond risk mitigation. It should be a function of demanding an understanding of how people in the company do business and achieve, or do not achieve, goals. Just as boards are charged with assessing corporate strategy and the metrics in place to reward and evaluate its progress, boards have an opportunity to oversee company culture and ensure the right systems are in place to evaluate and reward desired behaviors.
The vast majority of companies that monitor conduct at the board level do so as an ad hoc activity within the audit committee. As boards think about culture beyond conduct, rather than delegate culture to committee boards, they may want to think about incorporating culture into the broader board dialog. In 2017, the National Association of Corporate Directors’ Blue Ribbon Commission published a report suggesting boards consider integrating culture initiatives into existing committees and full board conversations. This elevation and distribution of the conversation on culture serves as a signal to shareholders and stakeholders that the company is taking a proactive stance on these important issues.
Great leaders have long understood the importance of managing company culture to ensure its people execute corporate strategy against corporate values. After all, culture drives how people act. How people act at the very top of the organization influences how people act throughout the organization. Taking the culture conversation to the next level in the board room is a chance for board directors to go beyond monitoring and into the realm of shaping and modeling one of the most important levers of a company’s success — how they do business. ♦
Lisa Coleman has over 20 years of experience as a thought partner, advisor and coach to leaders and organizations, from early stage start-ups through Fortune 500 companies. As a principal of Lisa Coleman Advisory Services, she provides executive coaching and board advisory services to public and private companies, with a focus on board and CEO succession. She is a certified leadership and organizational coach.