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Board Oversight of Culture

August 13, 2020

Posted in: WATSON Views

Whenever people are together, they create a culture for how they interact, whether deliberately or unconsciously. Culture can be subtle or very obvious, but it can be difficult to describe – a simple definition is “the way we do things around here”. Culture is never neutral. In the ideal case, it supports an organization in delivering its objectives and amplifies the efforts of its people (e.g., a “Default Open” culture at Reddit, which supports transparency, open feedback, and thus, learning[1]). In the worst case, culture makes work difficult, creates risks, and damages organizations (e.g., in the case of WeWork, where harassment and discrimination claims surfaced just before the company wanted to go public, leading to a massive loss in value and 2,400 job cuts[2]). The tremendous impact of culture makes it an important item for board oversight.

Culture can manifest in the workplace in varying ways:

  • In person versus remote work (or a balance of the two)
  • The layout of workstations – open concept or lots of offices
  • Preferred communication channels – video conferences, group meetings, in person, or email
  • Attitudes about asking questions – acceptance of asking leaders questions; what happens if someone asks a “stupid” question
  • The way values or policies are interpreted – are organizational values just wall ornaments or taken as fundamental moral guidance; is it acceptable to violate a policy; does a policy really apply to everybody, including senior leaders

When we talk about culture, we are referring to an organization’s collective values, beliefs, norms, and practices, that in turn influence how people behave. Structures, processes, and policies can set more explicit parameters around organizational culture and how people can and should act. This is where board oversight can make a difference.

Culture is alive and evolves, with or without any intervention by the board or management. Organizations can take an active role in shaping culture to strengthen their talent, structures, and processes. Throughout this continuous evolution, the board needs to build an understanding of the culture and monitor it in order to provide direction where it sees risks and opportunities.

Effective boards deeply care about culture, as it can create existential risk for an organization, as well as great opportunities. Many boards focus on the risk lens only as this can have an immense impact if left unchecked. Culture risks can be hidden and may not always be immediately obvious – the board needs to pay attention to more subtle indicators of an unhealthy culture. Examples include:

  • A culture of downplaying or tolerating harassment
  • Creating a “toxic work environment” where people feel belittled and unsafe
  • A nonchalant attitude towards health and safety

There is a significant opportunity for boards in supporting and continuously improving a positive culture, as this can strengthen the organization and ultimately enable it to better deliver its mandate. The benefits of a strong culture include:

  • Competitive advantage when attracting and retaining talent
  • Employees are more engaged, leading to higher organizational effectiveness
  • Mutual support in the workplace can reduce stress, mental and physical illness, and injuries
  • Diverse and inclusive organizations achieve better results[3]

So how do you oversee something as abstract, yet foundational, as culture?

1. Set an Example

Culture starts at the very top and only a board that truly lives the values of the organization can positively impact culture. This needs to be an authentic effort as people very quickly recognize if a board is just going through the motions. This can send the message to the organization that it is acceptable to pay only lip service to cultural values.

Boards can actively live a positive culture by:

    • Promoting diversity by actively recruiting diverse candidates to the board
    • Practicing inclusion by listening to and considering different perspectives and thinking styles
    • Considering emotional intelligence when selecting directors and hiring the CEO
    • Communicating deliberately, transparently, and authentically as a board when interacting with management, employees, stakeholders, and the public

 

2. Take a look

The intangible nature of culture can make it elusive and hard to describe, while still being intuitive to perceive. Directors can observe culture firsthand by:

    • Walking in the workplace – is everybody quietly working with heads down; are people standing together talking; is anyone acknowledging the director walking by
    • Interacting with staff (e.g., when staff attend board meetings or during events)
    • Asking management for reporting and insights based on their analysis of anonymous websites like Glassdoor or Indeed
    • Having employee focus groups present to committees to profile significant initiatives (e.g., a presentation on an important diversity initiative to the human resources committee)

Taking an interest in what employees say and do can allow the board to extrapolate key culture issues.

 

3. Be intentional

A strong culture doesn’t happen by chance and a great culture can be extremely challenging to get right and sustain. Boards need to be intentional about culture in order to impact it. The board can start by communicating the importance of culture, putting it on the board agenda, and making it part of the organizational strategy. Ensure that there is awareness, as well as structures and resources to support culture in the organization (e.g., diversity and inclusion guidelines, leaders who model behaviour, change management capacity to promote cultural change, etc.). Strong organizations ensure that their people can support the deliberate evolution of a positive culture on all levels.

 

4. Drive accountability

While culture is difficult to monitor in its nuances, there are a number of ways organizations have started to track their cultures. Dashboards with multiple metrics can provide an indication of current culture and its variables (e.g., employee engagement values, exit interview information, turnover of high performers and potentials, etc.). This can help track culture initiatives and their results. Consider reviewing dashboard metrics periodically to determine if they provide insightful information and make adjustments as necessary.

A culture dashboard can allow the board to set targets and hold management accountable for targets as part of their performance. Ensure that culture performance impacts a significant portion of flexible compensation, if such exists.

Another important standard for accountability is a Code of Conduct. Codes of Conduct set out the organization’s expectations for the behaviour of directors and employees. Clearly communicating expectations in a Code of Conduct that every person in the organization has to review and sign can hold people accountable in a consistent way.

 

5. Develop a whistleblower policy

Whistleblowers can help organizations uncover important cultural issues and address them early. Ensure that there is a carefully crafted whistleblower policy and that the organization takes whistleblowers seriously. This means the organization must act consistently, no matter what concern a whistleblower raises. The board must also ensure the organization has rigorous policies and procedures to protect whistleblowers. People are naturally curious and can be very creative in trying to determine the identity of a whistleblower. This can cause lasting harm to both the individual and the organization. Boards must remain vigilant and ensure the organization not only has robust policies, but that it practices them as well.

 

6. Conduct a culture audit

A good way to get started on culture oversight is a culture audit. This can be fairly comprehensive or relatively simple, depending on the size and nature of the organization. An audit may include information that would be part of a culture dashboard (e.g., pay equity metrics, number of women in leadership roles, etc.). You can gather additional information by having an external auditor survey or interview employees and synthesize feedback to preserve anonymity. When making an investment in a culture audit, it is important for an organization to absorb the audit report carefully to avoid losing important nuances. It can also be helpful to focus on strengths that the audit reveals, as this could be a crucial competitive advantage.

There is a growing appreciation that an organization’s culture is important, and that the board has a vital role in monitoring and shaping it. Building a strong culture can take time and require effort, continuous adjustment, and modelling. The investment is well worth it. Culture is an important asset to an organization. Positive culture can significantly increase the value of an organization and help it deliver its mandate. Reversely, poor culture can significantly decrease the value of an organization and lead to its ultimate failure. Boards have an important role to play in living and guiding culture. Is your board up for the challenge?

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