Culture has long been considered an important element of organisational design but one which, in many cases, gets delegated to the HR department to ‘deal with’.
Why talk about culture?
In the current environment of aggressive technological advances, disrupted business models and new corporate strategies developed to deal with these, the ‘culture conversation’ is percolating back up to the Board level.
Tony Featherstone reported recently on the seven issues Boards need to watch out for in 2014 in the Company Director Magazine1. Organisational culture was #2. Boards drive corporate strategy, but implementation of strategy requires the right cultural settings. When the strategy is changing, no board can assume that the old cultural settings will deliver the new vision. Peter Drucker’s “culture eats strategy for breakfast” imagery is raw but certainly real.
The financial crisis delivered plenty of examples where culture disrupted, indeed, supplanted business-as-usual strategy. David Murray, former Commonwealth Bank chief and Future Fund chairman, made the case recently that a lack of focus on ‘people systems’ – culture – is much to blame for the outcomes experienced by many financial institutions over that time.2 He warned:
“…if owners of financial institutions don’t take more of an interest in the people who govern those financial institutions and how they interact with the management of those financial institutions, it gets harder for us to encourage great cultures in financial institutions.”
It is also hard to ignore the many studies which have shown that a highly engaged workforce, focussed around a culture that they believe in, has resulted in both soft and hard improvements in performance – better client service, more innovation, higher quality output, lower rates of absenteeism and turnover. For example, a 2006 global study showed that, in essence, companies with engaged workforces had 50% higher levels of operating income.”3 The evidence overwhelmingly points towards an engaged workforce generating better financial returns for an organisation.
Culture and service providers
The impact of corporate culture can extend more broadly than just the organisation itself. Many companies actively choose to align themselves with suppliers and service providers that share similar or complementary values and culture with their own organisation.
In some cases, an innovative, risk taking organisation might need the balance of a realistic, risk-averse service provider, particularly in highly regulated or market leading organisations
where compliance is a focus. In other cases, companies with strong cultures of a particular kind – humanistic, team based, innovative, customer focussed – want to align themselves with like-minded service providers.
This type of cultural alignment can reduce learning curve (time and cost), improve the creativity and speed of joint outputs and remove the noise that arises when a client and its service provider do not understand each other.
So, what is culture and why should boards get involved?
There is no shortage of different opinions about what culture is and how it is defined. The old “glue that binds” definition is one that sticks. The Human Capital Institute offers a more theoretical definition:
“The collective interaction of experiences, environments, co-workers and behaviours that are authentically and consistently demonstrated and supported within a organisation, creating a unique outcome which becomes “the way we work around here”.”4
It shows itself in the levels of commitment which employees have to their organisation. Where the culture is strong, employee commitment is emotional, constructive and team based; where the culture is weak, employee commitment is passive, defensive and rule-bound.
“Top down leadership” doesn’t necessarily require a board to get involved in every aspect of the business and its people. Indeed, it needs to be freed from the day to day to be able to focus on strategy, markets, performance of management, etc. However, boards have a long term commitment to the organisation and can provide critical cues about culture through what the board says, who the board employs to the CEO position, and what procedures and systems the board advocates and rewards. That powerful voice can set very strong signals and provide the cornerstone to successful implementation of the company’s strategy.