Wednesday, 01 June 2016

John Brogden AM FAICD photo
John Brogden AM FAICD
Managing Director & Chief Executive Officer, Australian Institute of Company Directors

    The growing emphasis on corporate culture and its impact on organisational success means that it is an issue not to be ignored, writes John Brogden.

    Setting the right tone

    Culture is a particularly hot topic on the minds of directors, in boardrooms, with regulators, media and the public of late.

    The Australian Institute of Company Directors (AICD) believes that directors creating and nurturing the right culture, or setting the right tone from the top, are crucial to organisations’ success. It can improve performance and mitigate against poor short-term behaviour.

    Poor culture has been identified as the underlying cause of corporate misconduct in a select number of cases in Australia in recent years. It is only right that it is a priority on the Australian Securities and Investments Commission’s agenda.

    This edition focuses on culture, with an emphasis on culture in our sporting organisations. Veteran Australian sports administrator David Gallop shares his unique experiences at the helm of two of Australia’s major sporting codes. We also hear from the heads of Cricket Australia, Tennis Australia and former AFL commissioner Sam Mostyn.

    Sporting clubs manage a range of unique governance challenges, including increased media and public scrutiny, doping, illicit drugs, anti-social behaviour, and members’ and public liability. These issues aren’t solely faced by players but members, executives and directors who are forced to deal with often confronting and systemic issues embedded into clubs over years.

    Boards must be at the forefront of the culture of their organisation. A recent UK survey of investment professionals shows the implications of getting it wrong. Ninety-four per cent of investors said organisational culture was important to their investment decisions. One-third claimed it influenced both buy and sell decisions. And how did they identify culture within an organisation? Eighty-one per cent said personal experience with a company informed opinion and 79 per cent said that dialogue with company leaders, including directors, was critical.

    The report stated: “Today, the focus for professional investors is on the behaviour of your executive and whether they can be trusted to operate consistently with your stated values. It is no longer sufficient to just talk about your culture. Your ability to demonstrate it in action, ‘your walk’, is critical.” When it comes to our national sporting codes the buck must stop somewhere and that is not solely at the players’ or teams’ feet. All participants have a role to play in ensuring the establishment of good governance and practices within our sporting organisations.

    Each year the AICD conducts the Not-for-Profit Performance and Governance Study (formerly Directors Social Impact Study) focusing on the not-for-profit (NFP) sector, examining governance challenges and opportunities. In 2013 the AICD placed specific focus on sporting governance, noting the need for high-performing and well-functioning sports organisations at all levels. Our study found that sporting boards have undertaken less professional development than others. Nearly half of sporting boards had not undertaken any professional skills development the prior year. Directors spoke of the need to improve governance knowledge and skills, strategic planning and performance evaluation. Importantly directors of sports boards rated their overall effectiveness as poorer compared to all other NFP organisations.

    Culture is an intangible concept and the key to reforming it is likely to lie in the attitudes of those who govern and run an organisation.

    But perhaps most significantly we identified divergent views on the impact of doping and illicit drugs in sport with directors noting that the board has little responsibility or ability to control doping or illicit drugs and that it was not on their agenda.

    “Good corporate culture” is not something that can be achieved through black-letter law. Culture is an intangible concept and the key to reforming it is likely to lie in the attitudes of those who govern and run an organisation. As directors, we must consider culture from a different perspective and be open to new ideas about how to improve our organisations’ ethics.

    Over 2016 the AICD intends to focus on boardroom culture by continuing to work with governance leaders to drive performance through culture.

    Next month, Company Director will feature a regular column from our in-house chief economist, Stephen Walters, who is replacing outgoing columnist, Paul Kerin. We would like to thank Paul for his insightful pieces over the last 15 months.

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