Board Best Practices Series: The Board’s Oversight of Culture

Board Best Practices

Board’s Role in the Company’s Culture

Imagine moments in which culture impacted your life. Perhaps it was a Van Gogh painting or a ballet or an energizing business forum. Culture connects and impacts our lives profoundly. Culture happens. In business, good or bad, evil or benevolent, culture is a motivator and a key ingredient to our purpose and meaning as employees. Each of us, CEO or intern, board member or CMO, who works for a company as an employee, is a member of the team. Teams have leaders and, depending on the team’s complexity, many sub-level leaders. The responsibility to set the tone for the right culture for the team starts with those leaders.

Great leaders – Level 5 leaders to use Jim Collins’ jargon – possess a relentless drive to succeed but do so with humility.  “The X factor of truly great leadership is humility,” according to Collins. What sets a Level 5 leader apart is that their “energy and drive and ambition is channeled outward into a cause, into a company, into a culture, into a quest, into something that is bigger and more enduring than they are. Level 5s lead in a spirit of service.” Great leadership is about inspiring a positive culture so that each member of the team is moved to perform at their highest or best purpose. Success isn’t about the leader. Success is about the team.

How a Focus on Culture Is Driving Change

The recent emphasis on “environmental, social, governance” (ESG) and Corporate Social Responsibility (CSR) is born from a concern for our culture. Anyone who ever lived near a polluted river or lake as a young person has a keen sense of the importance of a healthy environment from time spent yearning to swim or play in clean waters. The #MeToo movement was a very public response to a culture that for too long ignored or covered up workplace behavior with a wink and a nod to those who were complicit. CEO compensation has made headlines as the media spotlight on the pay gap between CEO and the rank-and-file pay has grown. How companies respond to issues like these factors not only into shareholder and investment decisions, but also into decisions made by, just to name a couple, cities considering which new businesses to court and by prospective employees considering which opportunity best matches their personal and professional priorities. The response is a strong indicator of a company’s culture.

Governance is the foundation on which an effectively managed organization is built and culture is promoted and elevated.  This foundation includes policies and procedures that provide for both opportunity and accountability. An effective corporate governance framework includes structural elements that facilitate valuable, coherent, board, management, and stakeholder communication and interaction.  These elements include:

  • Charters that clearly articulate board responsibilities and limitations
  • Fundamental principles that promote long-term growth and value
  • Provisions for effective two-way shareholder communication
  • Board selection criteria and an annual assessment process that promote effectiveness
  • Following the rules and regulations of culture, a nation, and a jurisdiction
  • Oversight of both individual leader and corporate culture bias
  • Allowing management to manage for the long term

In today’s often hyper-competitive business environment, when two similar teams face off, the team that exercises superior governance outperforms rivals. Governance and culture are inextricably linked.  By definition, great governance affords teams and, therefore, companies greater ability to capitalize on opportunities.  The operative word in our definition of corporate governance is opportunity.  Often academics and leaders will opine about the need for enterprises to “think like an entrepreneur.” Well, entrepreneurs eat, sleep, and drink opportunity.  An excited, excellence-focused business culture will devour a stale, uninventive one.  To borrow Peter Drucker’s often quoted phrase, “Culture eats strategy for breakfast.” The greatest strategy in the world will perish in the hands of an unmotivated, fatalistic culture.

How Leaders and Boards Influence Culture

Business culture gave Steve Jobs a “pass” because, in spite of his rude and harsh behavior, he motivated people to be the best they can be.  Historically, a toxic culture of machismo tolerated and promoted rude behavior from men. Was his behavior part of or essential for his and Apple’s success? Truth is, we’ll never know.  Possibly a more evolved leader in the future will accomplish Jobs-like success as a fiercely driven but humble Level 5 leader. And this notion of a more evolved leader will be part of the board-leadership-gender debate.

Are we learning from these lessons?  Like many workplace evils of the past, disrespectful and rude behaviors are certainly less tolerated than they once were. There are signs that we are improving and evolving towards a more enlightened culture shift in business globally. For starters, the expectation for boardroom gender parity is gaining widespread acceptance. Groups like Corporate Board Member, the Society for Corporate Governance, both in the U.S., Financial Reporting Counsel and ICSA in the U.K., and the Pearl Initiative in the Middle East are active promoters of governance excellence. The Cadbury Report (U.K.) issued in 1992 and the King Code (King I, 1994, South Africa) were early corporate governance and board excellence initiatives.

Stakeholders are calibrating their leadership expectations to include board-management alignment and the extent to which the relationship, vision, and interaction set the right tone for the right culture. As we’ve noted, among highly skilled young workers, a company’s culture is central to considerations of employment options. Our research and experience with clients indicate that this will continue as long as employment conditions favor the job seeker.

What to know about ‘attracting Millennials’
1. They prioritize culture.
2. They want to enjoy their working experience.
3. They want open and honest communication.
4. They want flexibility.

To attract top talent, boards and management must understand this: An important distinction exists between two dominant culture groups: one, a culture of continuous improvement that rewards the drive to succeed creatively, and two, a culture of fear and rebuke where the spirit of confidence is inhibited.  “Stress can be either a triggering or aggravating factor for many diseases and pathological conditions.”

Cyrus Taraporevala, president and chief executive officer of State Street Global Advisors, recently stated in a January 2019 letter, “We believe that at a time of historic disruption, increased focus on corporate culture and how it supports strategy is essential to sustainable, long-term value creation. This is good for investors…and good for our shared prosperity.”

Ten Lessons for Board Members adapted from Peter Drucker’s Ten Lessons Learned
1.   First, manage thyself
2.   Do what you’re made for — contributing to the board
3.   Work how you work best (and let others do the same)
4.   Count your time, and make it count
5.   Prepare better board meetings (particularly if you’re the committee or board chair)
6.   Don’t make a hundred comments when one will do
7.   Find your one big distinctive impact
8.   Stop what you would not start
9.   Run lean and think strategically
10. Be useful to management

Great leaders infuse the culture around them with that magical sense of “I can be the best me” at this job. In the best organizations, a deep sense of purpose saturates the organization and becomes a cultural value. Culture is ethereal and yet describable.  A senior management team and board aligned on being the best they can be are likely to positively infect their company’s culture, as well. Great culture promotes good governance. Good governance sustains great culture. Team efforts that encourage employees are solid ground on which to build a successful company.

“People don’t leave jobs, they leave toxic work cultures.”

Dr. Amina Aitsi-Selmi, The #1 toxicity factor at work, March 20, 2019

Call us at 800.645.1976 with governance questions about:

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