Culture dictates a company’s level of integrity and directly impacts a company’s reputation, profitability, and shareholder value as shown by the recent upheavals at Wells Fargo, Uber, and The Weinstein Company, amongst others. Boards collectively and directors individually know that culture plays an integral role in how the company operates. It is incumbent upon them to monitor, evaluate and, when necessary, step in to implement change.
This article serves to share six concrete steps that boards can take to monitor the culture of the company and, perhaps more importantly, detect trends before they negatively impact the company.
Get to know key players
The board should get to know the key players of the company, including non-C-Suite executives, through location visits, presentations to the board, or informal social gatherings such as pre/post-meeting lunches or dinners. These personal interactions provide the board with insight to the executives’ persona, what makes them tick, how they go about their roles and responsibilities, and how they view and treat other individuals. Only through this personal knowledge can the board truly gauge an individual’s aggressiveness in conducting the company’s business, their personal philosophies, and the degree of risk they are willing to take on. It is the personal beliefs and behaviors of the executive team that will drive a company’s culture and understanding those beliefs and behaviors is a key to understanding culture.
Understand your own culture
The board must understand and be able to describe the company’s culture. Is it an “eat what you kill” individual performance-based organization, or a more team-centric, relationship-building enterprise? Directors should take the time to consider and define the culture of their own organization, including that of the board itself, before it can truly monitor the company’s culture. Once the board has developed its own picture of the organization’s culture, it should be written down so as to provide a stake in the ground when situational pressures might fog memories and begin to push the culture in a dangerous direction. To keep the issue evergreen, the board should regularly vet that description with management and those employees with whom directors personally come into contact.
Know what is going on people wise.
Culture is considered by many as a “soft” subject, not easily boiled down to finite metrics. While true, there are several tools available to directors to evaluate what is going on amongst the people within the company.
First, the results of employee surveys (as well as those of customers and suppliers) should be shared with the board. If such surveys are not conducted, why not? While it is certainly not the board’s responsibility or place to act on those surveys, the information contained in them can be very valuable in passing along a sense of the organization. How do employees see the company? Management? Each Other? Do they feel respected and valued? As valuable as the survey results can be, individual comments submitted along with survey answers can be even more valuable. If possible, survey results should be broken down geographically and functionally, so as to provide a clearer and more detailed picture.
Second, complaints from the hotline maintained by every public company provide insight as to cultural issues employees see or perceive. Further, non-hotline complaints received for discrimination, harassment, or unfair treatment should be logged and reviewed by the board as well. Redacting names or other identifying information provides protection to all parties yet allows the incident to be reviewed. Gross report data is better than data that has been subjected to materiality filtering by HR or legal as that alters the overall picture and substitutes someone else’s opinion as to what is important for that of the board member. Hotlines and complaint logs maintained using a system where each complaint is given a sequential number so that the board can see that every complaint has been reported up and its progress followed through to resolution is a valuable monitoring tool.
Third, turnover rates, by location, function, gender, age, and other demographic or professional criteria (such as “stars”) provide a picture of change in the workforce. A single turnover number provides little valuable information, but a history of similar data provides a window as to change within the workforce. Attention must be paid to the nature of turnover data provided, as such data can be rendered almost useless by applying filters for classifications such as voluntary terminations and excluding those from the gross turnover rate. The real question to be asked is “How many people leave our organization for what reasons?”. The answers, especially the “whys”, and changes in the answers over time, provide a measured picture of employee satisfaction and commitment that may not be indicated in surveys or anecdotal reports. It is crucial to consider turnover rates in the proper context when comparing to peers. Remember that Wells Fargo justified its 30-40% branch personnel turnover rate as being comparable to its peers’ rate of 50% – but used retail stores as peers rather than bank branches where turnover averaged only 25%.