How do boards monitor culture?

Tuesday, 28 November 2017


    While there is no one-size-fits-all approach, regulators refer to three essential pillars for fostering a sound culture.

    Pillar 1: Governance

    The board should set an appropriate “tone from the top” in establishing behavioural standards, including promoting prudent risk-taking and fair treatment of stakeholders.

    Pillar 2: Incentive systems

    Incentive arrangements should not only reward good business performance but also take into account adherence (or not) to behavioural standards.

    Pillar 3: Feedback

    Boards should develop tools to monitor how individual business units and key management are adhering to the institution’s culture and behavioural standards. An effective escalation policy will help ensure timely, confidential reporting of questionable practices without the risk of reprisals. A dashboard of indicators — which may include staff and customer surveys, complaints and whistleblowing reports — suited to the company can assess culture.

    Checks and balances

    When it comes to culture, directors should think in terms of “noses in, fingers out”. ASIC has outlined five questions they should ask themselves.

    • Is culture a regular topic on the board and committee agendas?
    • Do directors interact broadly across the organisation (to gain insights)?
    • Does the board get pertinent input from stakeholders?
    • Are key indicators of cultural health reported and monitored?
    • Do the company’s stated values match the experience of customers, employees, business partners and the general community?

    Going deeper

    Directors should be alert to a major societal shift, says Dr Fiona McKenzie, co-founder and director of strategy at think tank the Australian Futures Project.

    When issues such as corporate misconduct arise, society tends to respond by seeking to enforce better conduct through regulation or changes to structures, behaviours or incentives, she says.

    McKenzie, a human geographer, says there has been a deeper societal shift that has brought a profound questioning about the benefits of markets, business and even the democratic process. “This is bigger than the reputation of individual businesses. The question is: where does business sit in a healthy society and is this vision shared by the wider community? If it isn’t, then the settings within which business operate can’t be taken for granted.

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