Culture is firmly on the agenda for boards across the world as it influences every part of an organisation. Yet, despite its omnipresence, many organisations find the concept of it difficult; in reality, creating a good culture is not as easy or simple as it may look because of its intangible nature.
ACCA has been conducting research on corporate governance since 2012, under a global initiative called Culture and channelling corporate behaviour.
There was good reason for this focus on culture: in the 2008 global financial crisis, many companies that demonstrated a great deal of compliance with rules and regulations still went through serious financial and reputational difficulties. Many thought that there were issues of dysfunctional behaviour either in the boardroom or across companies, and that regulation and corporate governance mechanisms were not enough to prevent them from spreading widely, and leading thriving businesses to all appearances to collapse.
Business scandals, public inquiries and corporate wrongdoing continues to make the headlines. As seen in a recent Trust Barometer by Edelman, a consultancy company, confidence and trust have been eroding across a range of sectors, from politics and media to business. Society now demands more accountability, and this falls within the responsibility of the board.
The wrong type of culture
Many observers conclude that poor organisational culture is a significant root cause of much corporate wrongdoing. Culture and the drivers of behaviour are now key issues for regulators, particularly for financial services. So through our research, we wanted to tackle this topic of corporate culture directly—exploring what it means in our professional life, how it affects us, and what we can do to change.
The research highlighted that culture is often driven from the top—corporate leadership entails responsibility for ensuring that organisational values are lived and breathed throughout the organisation. The findings also highlight the importance of interaction between corporate leadership and the rest of the organisation. Furthermore, everyone, including senior leadership, experiences peer pressure, formal and informal norms, and mirroring of behaviour.
For example, in our survey of 2,000-plus members, respondents said that setting the right tone at the top is fundamental. However, unless it is cascaded across the organisation, its impact would be limited in nurturing healthy corporate cultures. Interestingly, the majority of respondents said that they understand the purpose and objectives of their organisations and, furthermore, that they support their organisations’ values. And more than three quarters of respondents said that their co-workers are aware of their organisational culture.
On the other hand, 59% of respondents agreed that there were multiple cultures in their organisation, and 57% of respondents agreed that, solely or to a degree, the leaders in different teams and departments in their organisation are setting multiple tones. These findings should concern us, particularly the board and senior leadership in their role of driving corporate culture.
Another finding is that corporate culture is a mixture of formal and informal organisational processes, procedures and ideas. Formal processes and procedures directly define how employees, including corporate leadership, interact with the organisation as well as with each other in their day-to-day lives. Through these interactions, people come across visible clues and also contribute to the culture that prevails within the organisation.
To summarise more than 100 pages of findings, ACCA put together a tool that captures both aspects of culture. For example, there are formal things such as appraisals, company hierarchy, pay structure, access to the decision-making process, recruitment policy and training. But there are also more informal things like peer pressure, accountability and the existence of organisational identity. All of these things interact with each other and create an overall corporate culture.
Our behaviour reflects what we perceive as desirable or acceptable within the organisation’s cultural framework. And our behaviours in turn have a direct impact on the organisation’s delivery of its goals.
The tool places corporate leadership in the core to show that they are the primary source of impact because they:
- set the right tone at the top,
- develop a mission that incorporates the organisational values, and
- set the broad framework for performance management and communicate it throughout the organisation.
The importance of communication
Communication? you may ask. We often talk about tone at the top, but if that tone is kept within the top, it would have very limited impact. We should also remember that if the top is not interested in sharing its thinking with the rest of the organisation, it becomes a signal in itself as far as employees are concerned.
The middle layer of the tool shows a set of governance “lenses”: sustainability; accountability and trust; risk-taking and transparency; organisational values; and interconnections. We hope that these can help in analysing corporate culture in a systematic order, and then introducing changes. These lenses are closely aligned with well-established principles of corporate governance.
You might be wondering what “interconnections” is about: this relates to how people are connected to their organisation, each other and external stakeholders. We hear often that well-integrated organisations perform better, especially where those at the top have engaged and received the “buy-in” on their strategy from the rest of the organisation. Though it is not explicit in a traditional corporate governance framework, I am certain that this will become more prominent in the corporate governance debate in the future.
In short, there is a lot that the board can do, or can support management to do. As you might have started to notice, culture change involves concrete, deliberate measures, and are not always simple. Indeed, many things would take time to implement. But that is the nature of culture—it involves everyone and impacts their lives, but the value of making genuine changes goes beyond words.
Jo Iwasaki is head of corporate governance, Professional Insights, ACCA.
For more information on ACCA’s work on corporate governance and culture please visit www.accaglobal.com/culturegovernance.