Ten years ago, discussions of corporate governance were mostly limited to the halls of academic institutions and regulatory entities. Strangely, corporate governance was thought to be mostly or merely legal and rule-centric. This misconception was a failure of business culture at large. Evolved and effective corporate governance includes policies and procedures that provide for both opportunity and accountability, powered by Level 5 leaders. Governance is highly strategic and is essential to elevating and sustaining a company’s culture. In this regard, it is a foundational element of the social contract of trust between customer and firm. A positive “tone from the top” can ignite a culture of continuous improvement that is attractive to employees, customers and the public.
“The times they are a changin’,” sang Bob Dylan during the 1960s in the midst of global social upheaval and change. Today, we are in the midst of similar change, particularly within corporate culture. We are making some progress in the boardroom and the C-suite as the “loser now that will be later to win,” is the person of difference who is earning and gaining positions of leadership. But there are still those who, if they don’t “start swimming”, will soon “sink like a stone”; those who are narrow-minded, over 65, pale-skinned, and in possession of both X and Y chromosomes – if they don’t “heed the call.”
Leadership, care and governance
Fulfilling the Duty of Care is more than showing up for four board meetings and reviewing financials. Highly effective leaders exercise care on an intellectual, emotional, and even spiritual level, as in, “What do you really believe about the business and its contribution to society?” The Duty of Care is a legal board responsibility; caring requires a deeper human level of engagement, including knowing the business well.
The interplay of board and management is among the most important elements of a company’s culture. Furthermore, the interplay of board, management and employee contributes to fulfilment of the social contract and is intrinsic to corporate governance. Employees may not know their company’s board members and management personally, yet their influence is noticed and often discussed on social media.
Great governance and great leadership are inextricably linked. In his 2019 “Letter to CEOs”, Larry Fink writes, “Unnerved by fundamental economic changes and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues.” And, “One thing, however, is certain: the world needs your leadership. As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity.” A well-governed organization inspires the confidence of all stakeholders.
“Culture eats strategy [and governance] for breakfast” – Peter Drucker
A failure of culture is a failure of governance. Wells Fargo suffered 10-figure reputational damage resulting from the misdeeds of bank employees. “It takes a lifetime to build a good reputation, but you can lose it in a minute.” How many terrific ideas have failed due to a founder’s, a manager’s or a board’s failure to recognize the importance of the relationship between culture and strategy? A company needs the right strategy to thrive, but strategy needs the right culture to succeed. The right culture can be immeasurably impactful.
Like trust and care, neighbor is another word with strong business and cultural implications. “Like a good neighbor, State Farm is there” is that insurance company’s familiar jingle. Crisis often brings us – neighbors – closer together. The rising generation who have entered the workforce within the last 10 years were not impacted by the global financial crisis (GFC) in the same way as their parents. However, Millennials, who tend to choose apps and algorithms over human interaction, will need evidence that a banker or wealth manager is a good neighbor and provides benefit. In addition, this rising generation base their decisions regarding trustworthiness not on face-to-face interaction, but on the news reports about security breaches and hacks, their online experiences with companies, and postings on social-media channels. These interactions quickly inform their beliefs about a company’s culture.
Changing and emerging consumers are prioritizing culture, and especially where business culture can positively impact social problems. If you want to understand your customer, especially the changing customer, understand their culture.
Cyrus Taraporevala, president and chief executive officer of State Street Global Advisors, said, “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.”2
Our world, and especially the financial sector, is desperate for courageous leaders who will inspire future generations by caring for their neighbor and executing strategies that will grow prosperity among more humans to positively impact global issues for generations to come.
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2 Cyrus Taraporevala, President and CEO, State Street Global Advisors, Corporate Board Member, Culture Matters, Second Quarter 2019
