The shorter Oxford English Dictionary develops its definition of culture from “the cultivation or development of the mind” to “the distinctive customs, achievements, products, outlook, etc, of a society or group; the way of life of a society or group”.
Or in organisational terms “the way we do things around here”.
Regulators are taking more interest in board and organisational culture as a result of the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and monitoring indicators of culture is now more important than ever.
In today’s post Integrity Governance canvasses the reasons why culture is so important and outlines a few ideas for how boards can lead culture from the top.
Every organisation is different.
Many directors agree that prescribing rules or legislating to ensure good culture is not the best option. Good culture for one organisation may be not be workable for another. But when you boil it down, good culture arises from respect, integrity, and trust. This applies equally to directors, executive leadership teams and staff. Respect for customers and a willingness to listen is essential in developing good relationships and repeat business.
Culture reflects the collective values and beliefs of directors and the executive team. It influences behaviours, actions and decision making. Good culture results in a successful organisation and good outcomes for customers. Bad culture manifests as division and dysfunction.
Cultural norms filter down through an organisation from the top. Boards and organisations that live and breathe their mission, vision and values, which manifests as good culture, will be more successful in the long run.
Following the Hayne Royal Commission there has been much discussion in director circles about how boards must be actively involved in setting, monitoring and improving culture.
Directors of high performing boards are aware of how their own behaviour impacts their board and subsequently the organisation they govern. They respect the views of others, even though they may not agree, and they practice active listening. They exhibit rational compassion towards each other and encourage diversity of approach to problem solving.
A healthy board culture is constructive and challenging in a respectful manner. It enables directors to challenge each other, and to question management assumptions, without fear of reprimand.
Board culture may be influenced by formal structures and processes, along with the softer attributes of emotional intelligence, and the relationships between directors. Desired cultural norms require constant reinforcement. Directors must be more visible within their organisations, and they must learn about and understand their industries
Clearly defined values should permeate all levels of an organisation. The lesson that emerged from the Prudential enquiry report into the CBA is that staff must develop the practice of putting themselves into the customer’s shoes and asking, “Should we?” rather than “Can we?” Strongly defined values which are well understood by all staff will lead to ethical behaviour and acting in the best interests of the customer, and ultimately, the organisation.
In monitoring culture boards should seek feedback from as many sources as possible from different layers within the organisation. Is discussion of culture a regular agenda item at board meetings? Have indicators been identified which suggest there may be problems? Are OH&S reports suggesting there are issues in the field? What is the media noise about the organisation? How is the voice of the customer heard at the board table?
Other relevant measures for monitoring culture include employee turnover, absenteeism due to illness, customer complaint escalation procedures, and customer satisfaction results. Efficient use of committees can assist the board in monitoring cultural indicators. Even when things are going well boards need to ask about pressure points within the organisation and how the risk is being mitigated.
When it comes to culture, directors should think in terms of “noses in, fingers out”. ASIC has outlined five questions they should ask themselves:
- Is culture a regular topic on the Board and Committee agendas?
- Do board members interact broadly across the organisation to gain insights?
- Does the Board get pertinent input from stakeholders?
- Are key indicators of cultural health reported and monitored?
- Do the organisations’ stated values match the experience of customers, employees, business partners and the general community?
The evolution of a strong, positive culture will result in a high performing organisation and the creation of a place where people want to work.
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