How Boards Across The Global Deal With Culture

When it comes to waking up to the role healthy corporate culture plays in a company’s success, American boards are hardly alone, of course. Part one of an in-depth look at the state of the issue in some of the world’s biggest economies.When it comes to waking up to the role healthy corporate culture plays in a company’s success, American boards are hardly alone, of course. Recent calls from big global investors like SSGA and BlackRock for companies to examine their purpose, values and behavior are sharpening the minds of directors across Europe, Asia and elsewhere to ensure management is doing the right thing. Politicians, regulators and the public are also pressing boards to take action.

Progress in developing healthy company culture differs across the world. Board oversight is reasonably well developed in some countries, while others are just starting to introduce change and struggling to shake up traditional thinking. “It is hard for companies to define corporate culture when they have never done it. Culture is still a bit vague [for them],” says Peter Montagnon, associate director at the Institute of Business Ethics in the UK.

Here’s a look at the state of the issue in some of the world’s biggest economies:

UNITED KINGDOM: Scandals Trigger Action

In the UK, where the first corporate governance code was rolled out in 1992, several drivers are pushing boards to improve their company culture. Last year, the Financial Reporting Council, the accounting watchdog, revised the corporate governance code, calling on companies to establish a culture aligned with company purpose and business strategy, and to promote integrity and values diversity. The regulator even provides boards with a how-to guide.

“Changes to the corporate code, stressing that boards must oversee culture effectively, have been one of the main catalysts for change,” says Roger Barker, head of corporate governance at the Institute of Directors, in the UK.

Some company boards are moving ahead with their culture plan of action. SSE, the FTSE 100 energy group, says in its 2018 annual report that a healthy culture goes beyond complying with legal requirements—it’s about doing the right thing. The group says it aims to operate with transparency and integrity in as many ways as possible, such as increasing inclusion and diversity, taking zero tolerance to bribery and corruption, and respecting the human rights of employees and people in its supply chains.

The board makes sure that culture-related policies, such as Speak Up, a whistle-blowing procedure to encourage employees to speak out about wrongdoing, are in place and working effectively. The number of employees who voiced concerns rose to 105 in 2017-18.

Montagnon says good board oversight of culture is partly driven by a need for change. Scandals have been a trigger for boards to sharpen their oversight. “In the UK, boards are further ahead than other countries because of a string of scandals, such as [those] at BHS, Tesco, Sports Direct and Carillion, and these came not long after the financial crisis.”

Boards are learning that they need to understand why and how such scandals happened in order to tackle unhealthy culture and restore trust in business.

At British banks where corporate culture has been under heavy scrutiny after scandals over predatory consumer sale practices, mistreating small businesses and attempts to rig the Libor interest rate benchmark, boards are trying to come to grips with some of the issues. They are now making sure their banks are setting out clear values and goals in their culture mission statements, which includes more attention to customer satisfaction and employee well-being.

Royal Bank of Scotland, which was accused of mistreating small businesses in distress at its Global Restructuring Group, after the 2008 financial crisis, is among the boards working to guide culture change. In its mission statement, the bank says its long-term success depends on creating a healthy culture and that its values and code of conduct guide the way it relates to employees and customers. RBS highlighted that last year’s annual assessment of its culture progress by the Banking Standards Board showed improvement.

RBS recently set up a colleague advisory panel for board members to engage directly with colleagues, build two-way dialogue and bring more diverse thinking into the boardroom. The panel includes employee representatives.

Many boards still have some way to go. A 2018 company culture survey by the Institute of Business Ethics said boards were still struggling to understand the culture of their organizations. On the upside, 82 percent of the 28 large UK companies surveyed said their boards monitored culture-relevant data but the report also showed that more attention still needs to be paid to customer satisfaction, the supply chain, social media records and exit interviews.

SCANDINAVIA: Smarter Recruitment

Scandinavian companies have inspired trust over decades, driven by a Nordic corporate governance model and a healthy values-based culture that has been the envy of many countries. But much of that has fallen apart in recent years after a long list of scandals, including money laundering at Denmark’s Danske Bank and exposure of corruption at other companies.

In Sweden, boards are scrambling to convince politicians, investors and the public that their companies have a fair and trustworthy culture. “This is a priority for boards because people don’t trust big, listed companies, and urgent action is needed,” says Suzanne Liljegren, a director at the Swedish Academy of Board Directors and communications chief for the European Confederation of Directors’ Association.

So how are they doing this? Savvy recruitment is the key. Boards are recruiting new members, who are experts in areas such as law, technology or ethics and will ask the right questions and speak out even when the majority of the board has a different opinion, says Liljegren. The new breed of directors are also confident enough to make sure that vital information held by management on daily operations, involving risk-taking or ethics, is shared with the board.

“Now there is a realization that changing culture cannot be a facade but time to take action on core values and behavior,” says Liljegren.

One company that prides itself on a reputation for an open, inclusive values-based culture is Swedish retailer Ikea, known for its affordable flat-pack furniture. Would-be employees are invited to create and share in the values and goals of the company. On its website, the company says the core of its culture “is to create a better everyday life for the many people.” The aspiration is not just based on products but on wider aims. The board and management are working on a range of culture issues that include the ambitious goal of gender equality and reducing its climate footprint by 70 percent per product by 2030, through recycling and renewable materials.

We will have part two of this article next week

 

Read more: Six Questions To Ask Yourself About Culture—Before Investors Do