Culture is easy to talk about but challenging to get a handle on, and it's important directors send the right signals.
Appointing the CEO and setting the strategy of the organisation are two of the most important levers the board can use to drive organisational performance. A key enabler of performance is the right culture. Just as the board must be clear about the strategic direction of the organisation, it must also be clear about the kind of culture required to enable its achievement. High-performing boards ensure that strategy, culture and leadership are intimately aligned with the purpose of the organisation and the promise of its brand to customers and stakeholders. The board should be deliberative in shaping the culture required for strategy achievement, acting as an exemplar in the carriage of its role.
The AICD has worked with many boards that have missed the importance of their role in this regard. In one example, board and management had developed a great strategy, but could not get traction in implementing it. On closer investigation, the organisation didn’t have the right cultural underpinning. The strategy required high levels of shared knowledge and collaboration, and yet an entrenched culture of individualism, built over many years, had created separation between business lines. This was evident in the way information was coming to the board, the way products were taken to market, and ultimately, in the overall performance of the organisation.
Changing the prevailing culture is often hard and it takes time. It starts with a realisation that what is occurring in the business is preventing the organisation from performing at its peak. At times, this can be triggered by a change in the board. New directors bring new perspectives and this can lead to good questioning as to whether the culture is best serving the organisation and its goals. A change in an organisation’s life cycle, a shift in market dynamics, the entrance of new competition or an altered business structure can all act as catalysts for a new culture and new leadership.
If a culture change is required, the board needs to be clear about what the change is and the quantum of that change. A new CEO can be the most immediate and effective way for the board to facilitate change. Recruiting for a new CEO needs careful deliberation. Too little change in leadership style and approach is unlikely to result in a noticeable shift; too much and the board risks losing top talent, which can pose a risk to organisational stability. A careful eye on employee turnover can give the board a steer as to whether adjustments need to be made.
The board also needs to ensure its own culture is aligned with the change requirement. For example, an organisation may require a culture of heightened innovation to respond to market dynamics that require speed, agility and responsiveness. An overly conservative board can thwart the ability of the organisation to achieve the precise culture it believes is needed to compete. Actions the board may take to address this may include exposing itself to new thinking through board briefings or workshops led by specialists in different fields; considering what factors might increase the board’s confidence levels in management to take on increased experimentation; or contemplating whether a change in the board’s composition and skills matrix is needed.
So what of the board’s role in influencing the culture of the wider organisation? While it is the job of management to develop and lead the required culture, it is the role of the board to provide ongoing and effective cultural stewardship. As part of its oversight function, the board, through the CEO, should be providing clear direction regarding the ways of working expected of all employees in the pursuit of organisational goals.
There are a number of mechanisms that can help achieve this, including making sure the organisation’s structures, policies and practices, including reward and incentive schemes, are actively supporting the realisation of the desired culture and not working against it. Again, we have seen where a misalignment can frustrate desired behaviours and outcomes. Reward schemes that drive an obsessive focus on quality may see an organisation failing to keep pace with the industry. Schemes that send the message that sales trump all may drive behaviours not in line with organisational values and customer expectations. The board needs to closely monitor the extent to which these structures and systems are driving the right behaviours and results, and adjust accordingly.
Just as the board, through its actions, takes responsibility for setting and approving expected cultural standards and overseeing the ongoing culture of the organisation against these standards, it also needs to ensure that it has access to information to understand what’s going on. Having independent mechanisms in place to monitor culture, and the contribution that the CEO makes toward it, helps to maintain focus. Staff and customer engagement surveys are particularly useful to the board in this regard.
A board that is itself having cultural issues can send confused messages to the CEO and management regarding what is expected of them. Boards that find themselves operating in a suboptimal cultural environment can find it very difficult to reset as a group. We have worked with boards that have been challenged by board dynamics.
In one example, the board had developed a level of “deafness” to the contribution of certain board members with different backgrounds; who used a different “language” during board deliberation and debate. Over time, this meant the board effectively shut out alternate views and the organisation lost the benefit of the contribution of high-value members.
In another, a rift between the chair and CEO served to create factions on the board. Relationships rapidly deteriorated and the board found itself in a state of heightened dysfunction.
It is in these situations that the organisation’s stated culture and the values that underpin it can be useful in guiding the board to a more productive state. Once expected board behaviours are defined, board members are able to hold themselves and each other to account, and prevent the risk of a future decline.
The board can strengthen behaviours by taking time at the end of each board meeting to review the extent to which it lived the culture in its discussions and decisions; what signals it sent to the leadership team; and what behaviours it reinforced. In doing so, the board can continue to reflect on its own alignment with the type of culture it is promoting, as much as the behaviours that underpin it.
Ultimately, the test of an effective board and organisational culture is the creation of value over time. As we have seen in a number of high-profile cases recently, an organisation can find itself under high levels of pressure when corporate actions do not meet the expectations of customers and wider stakeholders. A strong culture, supported by sound ethical underpinnings, can help to ensure the organisation is best placed to build sustained value into the future.
Five key culture questions for boards
- Does the board provide clear direction to the organisation regarding the culture that is expected of staff in the pursuit of organisational goals?
- Does the board closely monitor the culture of the organisation and the contribution the CEO makes toward it to help ensure the culture fits with the organisation’s strategic direction and plans?
- Are the organisation’s structures, policies and practices (including reward structures) supporting the realisation of the desired culture and not working against it?
- Does the board have ready access to reliable and comparable data to assess whether the promoted culture of the organisation is being realised in practice?
- Are the current cultural and values espoused by the board the best ones for the organisation now and in the foreseeable future?
Gabrielle Schroder FAICD is also chair of the NSW Local Advisory Board of the National Heart Foundation of Australia.
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