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.
Here is part two of our look at the state of corporate culture in some of the world’s biggest economies. Part 1 is here.
FRANCE: Stakeholders Unite!
France has also been rethinking the role of the company in society. Last year, the government commissioned a report on corporate raison d’être or justification for existence. “The outcome was that it is important to defend stakeholders’ interests, not only shareholders’, and to have a goal that goes further than profit,” says Agnès Touraine, who worked on the report and is president of the French Institute of Administrators.
The report findings, which are now at draft law stage, are a sharp reminder to boards that they must have a healthy culture and carry out their corporate social responsibility, says Touraine. They should also make sure the culture is driven by the chairman and board, who see that management are putting it into action, she adds.
One French investment bank, Société Générale, describes how it has been working to transform its culture in its 2018 registration document. The bank set up a culture and conduct program in 2016 that aims “to build confidence among all its stakeholders, especially its customers, and to develop the Société Générale culture by placing values, leadership quality and behavioral integrity at the heart of its business conduct.”
The board is overseeing key themes, such as developing the perception of culture in the company, staff development and training, and governance and responsibilities of the governing bodies.
AUSTRALIA: Embedding and Sharing Values
One of the sticking points many boards face is ensuring the whole company is sharing the same set of values and behavior. Julie Garland McLellan, a non-executive director at Bounty Mining, a small ASX-listed mining company in Australia, says this is especially challenging when outside contractors and suppliers are involved and “have different ideas what is culturally acceptable.”
McLellan defines the culture at the mining company as a blend of safety and productivity. Anyone entering site operations or head office undergoes an induction. “Mental stress and harassment are also on our radar and would not be tolerated if they did occur,” she says.
The board takes a hands-on approach to see whether the right values and behavior are embedded in the organization by getting out of the boardroom and meeting staff, which McLellan describes as “walking the halls.” Directors also make frequent site visits, which “allow for firsthand observation of the culture and for feedback to the CEO on what the board has observed.” Such visits help the board to assess whether company culture is aligned with strategy in its daily operations when they talk to employees.
The board sets the culture tone from the top, which is then passed through the CEO to operations. “Cultural fit is as important as technical skill when recruiting the chief executive and others,” says McLellan.
Recently, Australian boards got a diversity boost as the number of women on ASX200-listed companies reached nearly 30 percent, without quotas. In a country often seen as having a strong male-influenced culture across society, politics and business, the report from the Australian Institute of Company Directors is seen as a healthy sign of change.
JAPAN: Outsiders In?
Last year, Japan strengthened its corporate governance code, three years on from its rollout, to bring in external directors to boards. The step is likely to have an important effect on the way boards behave and on company culture.
Hopes were high for 2015 governance reform, which had the backing of Shinzo Abe, the country’s prime minister. But boards have been slow to change their mindsets and traditional approach to culture, which hinges on unquestioning loyalty to leadership and the company.
Recent events at French-Japanese car-making alliance Renault-Nissan, where ex-partnership chairman, Carlos Ghosn, was arrested last November over allegations of financial misconduct and detained in a Tokyo jail, shocked foreign companies. Nissan’s actions and opacity have raised questions as to whether boards are really tackling governance and culture reform. Other scandals have also emerged, including data tampering at Kobe Steel and car-maker Subaru last year.
Why is this still happening? “A Japanese board is really a management board, almost seamless with mostly the same people, and that means group-think and a willingness to do anything to protect the company,” says Dr. John Buchanan, research associate at the Centre for Business Research, University of Cambridge and an expert in Japanese corporate governance.
However, he says the arrival of external directors to boards will bring more independent thinking to company cultural values and behavior. Outside directors are also being brought in to nomination and remuneration committees.
For now, progress is slow. Just a third of large-cap companies listed on the Tokyo Stock Exchange have appointed independent directors to their boards, and only a little over 4 percent of women held board directorships or advisory roles on nomination or audit committees at the end of 2018, according to the Financial Services Agency. The Tokyo Stock Exchange, which is seen as one of the companies with a more open, healthy culture, has a majority of external board directors.
Traditionally, board discussion in Japanese companies has been done outside the boardroom by internal directors, so boards are challenged by the prospect of a more open type of discussion that would lead to a more transparent culture, says Buchanan.
It is a huge task. “There will always be a steady stream of scandals in Japan,” he says. “Until people realize their own company microcosm is less important than the bigger outside world.”