Evidence suggests that corporate culture is not given the prominence it deserves: only 14% of FTSE100 businesses discuss their culture (according to research by Black Sun). However, corporate culture is of critical importance, it affects businesses from top to bottom: what they do, how and why.
The necessity for a broad, all-encompassing definition of corporate culture was the focus of a recent collaborative study undertaken by the FRC and partners. In their report (Corporate Culture and the Role of Boards, July 2016), the research indicates that corporate culture is a source of competitive advantage and the foundation of how a company approaches risk. They regard organisational culture to be a key determinant of how businesses approach any social, environmental or ethical issue, and argue that ignoring it can lead to significant financial and non-financial risks. Given that culture impacts so significantly on how a business operates and how it relates to and impacts upon wider society, businesses should expect scrutiny regarding the definition, development and monitoring of their culture.
A company’s culture may dictate how its staff is treated, how consumer and other stakeholder interaction is carried out or how a company manages its approach to risk. Culture is crucial to understanding how employees perceive their work and interact with their peers and employers, and to successful employee engagement. However, culture can no longer be regarded as a workforce-specific phenomenon only.
Given the abstract nature of ‘culture’ and the difficulty in providing a quantifiable definition, it is often reduced to ‘beliefs and values’. The real measure of the culture that is in place is the accumulated behaviours of people from across the organisation, which jointly not only delivers performance, but also demonstrates embedded attitudes, i.e. 'the way we do things around here'.
There is no 'right' or 'wrong' culture for an organisation to adopt; it is the role of its leaders to define what is most appropriate and suitable for their organisation. Importantly, this can and does change over time as its leaders, the organisation itself and its business environment change. The aim of defining a required culture is to support the delivery of the agreed business aims and objectives and, as such, there is no single culture definition that every organisation should adopt. The key is that it must link to what the organisation is trying to achieve, creating clarity for everyone across the business, thereby informing and influencing people's behaviour in carrying out their every-day duties. The better an organisation defines this cultural profile, then manages activity against it, the more likely it is that the culture will in reality become the 'norm'. Through this, it is then more likely to support the delivery of the organisations objectives.
Often there is an attempt to embrace this into a single phrase or short soundbite, such as "putting the customer first" or "a winning culture", which, whilst creating a clear focus, usually never describes the full profile of the culture that the leaders actually want for their organisation. If the culture is defined or understood solely by a single item like this, all sorts of anomalies are likely to occur when people interpret it in their own way. It is likely that the 'license to operate' and hence the sustainability of the organisation will be at risk, as such a license increasingly requires a wider range of issues to be addressed.
Directors should lead by example and ensure that good standards of behaviour permeate throughout all levels of the organisation. In addition to the values and beliefs articulated by a company at the senior management level, culture also includes the actual policies and processes of a company, and the nature of the interaction between the people who implement the policies (employees) and the people who develop them (owners/managers). Therefore, a firm’s leadership should ideally seek to be the enablers of company culture rather than simply regulators of it. In a workplace with a strong and successful company culture, employees take personal responsibility for the business’ success and are likely to be more positive about business transformation programmes. Hence, culture must be embedded within the company’s purpose, strategy, and business model.
EY considers corporate culture to have 4 ‘architectures’. In its June 2016 report, Governing culture: practical considerations for the board and its committees, EY conceptualises culture as having four key components: political, social, performance, and organisational. The political component entails the distribution and balance of strategic power within the company. The social is the nature of interaction between all stakeholders. Performance sees how external economic and risk factors influence behaviour. The organisational demonstrates how internal rules, practices, and processes influence attitudes. Other more complete, holistic typologies of organisational culture, which also recognise that the prevailing organisational culture of a company influences every facet of its operations, are offered by - among others - The Institute of Business Ethics, and the Chartered Institute of Independent Auditors.
To remain appropriate, effective and fit-for-purpose, corporate culture must be measured. As with definition, monitoring the abstract nature of culture is difficult. A helpful though indirect approach is to consider ‘proxy’ indicators that reflect a variety of functions across the business. For example, monitoring employee turnover, levels of sickness related absenteeism and customer satisfaction scores could illuminate whether there is a potentially unhealthy culture within a company. In addition, instances of whistleblowing or other grievances may indicate problems. Finally, monitoring organisational culture, though difficult, is vital; an unhealthy culture can take years to reverse and ongoing surveillance allows senior management to make early changes if problems are detected.